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arXiv · 2201.02828

Discrete-time risk sensitive portfolio optimization with proportional transaction costs

Marcin Pitera·Łukasz Stettner
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Abstract

In this paper we consider a discrete-time risk sensitive portfolio optimization over a long time horizon with proportional transaction costs. We show that within the log-return i.i.d. framework the solution to a suitable Bellman equation exists under minimal assumptions and can be used to characterize the optimal strategies for both risk-averse and risk-seeking cases. Moreover, using numerical examples, we show how a Bellman equation analysis can be used to construct or refine optimal trading strategies in the presence of transaction costs.

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Marcin Pitera, Łukasz Stettner. 2022-01-08. Discrete-time risk sensitive portfolio optimization with proportional transaction costs. https://arxiv.org/abs/2201.02828

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